Affiliated New York real estate firms are working on a deal to buy a 57-story office tower in Chicago’s Loop business district at a huge discount to previous pricing after a deal with a different buyer fell apart.
Namdar Realty Group and Mason Asset Management are in talks to buy the tower at 70 W. Madison St., according to people familiar with the deal.
A price could not be determined, but it is believed to be around $85 million.
That is less than the approximately $100 million that Florida-based FRI Investors agreed to pay about two months ago. That deal did not go through amid historically low demand for office space and a dearth of available debt to finance big acquisitions, according to people familiar with the situation.
Namdar and Mason, affiliated firms based in Great Neck, New York, are best known as buyers of distressed malls.
They stepped in to buy the more than 1.4 million-square-foot office building after previously eyeing a deal for it. Their deal is preliminary, so it could still fall apart.
If the Namdar venture does complete the acquisition, it would be the latest example of office towers throughout the country selling at prices far below previous transactions — and in many cases, such as this one, also far below the value of the debt.
Chicago firms Hearn and GEM Realty Capital and San Francisco-based Farallon Capital Management bought the tower for $374.6 million in August 2014 when the city’s leasing and investment sales markets were soaring. They refinanced the building with a $305 million loan from lenders including Bank of America in 2018.
Unlike most of the largest towers that have changed hands in Chicago recently, 70 W. Madison does not involve seller financing from the current lenders.
Namdar and Mason already have scooped up a distressed office building in Chicago this year, buying the $74 million loan on the 47-story tower at 1 N. LaSalle St. for a fraction of the loan’s value. That allowed them to seize possession of the property from previous owner Bridge Investment Group.
Those same two firms this year also bought a retail property on Chicago’s Magnificent Mile for $23.15 million. Although they’re best known as retail buyers, the firms have been on the hunt for office deals, including paying $54 for the 45-story 200 Public Square office tower, the third-tallest structure in Cleveland.
The Chicago tower at 70 W. Madison went on the market for sale in January. At the time, it was just 68% leased with a weighted average lease term of 5.4 years, according to a CBRE brochure.
Foreclosure suit
The lenders later filed a $275 million foreclosure suit against the ownership group, saying the venture missed a loan payment, the Real Deal Chicago reported in April. FRI Investors struck a preliminary deal to buy it a few months later, Crain’s Chicago Business first reported in September.
It’s unclear why FRI did not complete the deal, and the firm did not respond to a request for comment from CoStar News on Monday.
Hearn declined to comment on the deal. Farallon, GEM, Namdar, Mason and Bank of America did not respond to requests for comment.
Tenants at 70 W. Madison include law firms K&L Gates and Nixon Peabody, according to CoStar data.
The 2018 refinancing helped fund more than $53 million invested in lobby facades and entrances, conference and fitness centers, and other amenities, according to CBRE materials.
Those upgrades were completed before the onset of COVID-19 in early 2020. The pandemic brought about lasting remote and hybrid work patterns than have caused tenants to cut space and many properties to lose significant value.
For the record
The sellers are represented by CBRE brokers David Knapp, Blake Johnson, Arthur Johnson and John Saletta.